Article content continued
If they were to go the route of an insured mortgage, then after a $35,000 down payment, they would have a $565,0000 balance to pay. The CMHC fee in Ontario would be $22,600 and leave them owing $2,753 per month for, say, 22 years to Kathy’s age 65. With property taxes and insurance, say $500 per month, their total monthly bill for ownership would be $3,253. They can’t afford that, at least not yet.
They do, however, have $40,000 in cash on hand from Kathy’s severance pay. She is keeping $10,000 for tax and another $10,000 for an emergency fund. She has $9,976 in her TFSA and adds $95 per month. She has an RRSP and a spousal RRSP with a total value of $124,651 to which she adds $210 per month through a payroll deduction. They have two Registered Education Savings Plans with a total value of $13,077 to which they add $200 per month, half the allowable annual limit. They also have two cars worth a total of $35,000. Take off $41,203 liabilities and their net worth is $181,501. It is not much of a base for buying a home, but it could work, Einarson says.
If they use $40,000 from Kathy’s severance to pay off their debts, they would free up the cash flow they need to get into a house. They could then use $35,000 from RRSPs for a homebuyer’s plan loan for the down payment.
Their $9,976 TFSA and future savings could be used as an emergency reserve.
Waiting for Louis to find another job would make this plan an even better bet.
If Louis can find another job which pays at least $30,000 per year with an estimated take-home of $24,000 after taxes and deductions, they could build retirement capital. Kathy, with the higher income, could contribute to a spousal RRSP for Louis. If she adds $1,320 per month to her $2,600 spousal RRSP then in 22 years at her age 65 she would have a balance of $503,195 assuming a rate of return of three per cent after inflation. That sum could provide taxable income of $28,055 per year for the following 25 years to her age 90.